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The seven levels of financial freedom?

by | Apr 28, 2023 | Personal Finance

Do you ever feel like you are living from paycheque to paycheque, like life is an endless cycle stripped of its joy due to financial obligations that need to be met? Well, if you desire change for the better in your current and future financial circumstances, you can use “The 7 Levels of Financial Freedom” invented by Grant Sabatier as a guideline to turn your dreams into reality. Grant is one of the biggest success stories and leading voices in a movement known as FIRE “Financial Independence Retire Early”. He is a millionaire that achieved his financial independence at age 30. Regardless of your age, you have the potential to achieve and exceed the success levels that Grant has achieved and forge your own future. Let’s dissect each of the 7 levels of financial freedom:

 

LEVEL1: CLARITY

The first step is to evaluate your current financial circumstances. This includes how much money you earn, owe, save, and spend. Remember to identify the desired outcome of your journey to add purpose to your thoughts and decisions. You cannot achieve your goals without having clarity of your current situation.

 

LEVEL2: SELF-SUFFICIENCY

Independence is financially achievable, but it requires a person to earn enough money to cover all their basics needed to survive without having to rely on external help such as procuring debts and family contributions. It is understandable that in this stage, many will be living paycheque to paycheque due to the number of necessities to cover.

 

LEVEL3: BREATHING ROOM

Progressing from level 2 to 3, sometimes requires one to change priorities with the remaining funds after necessities have been covered. Many who experience financial struggles use short term coping methods such as spending the remainder of their salary on luxuries to attempt relieving this burden. It is not mandatory for one to earn more at this level, however, the remainder of money available after paid necessities should be allocated towards goals such as investing, emergency funds and retirement.

 

LEVEL4: STABILITY

Those who have reached this level have paid up all their existing debts and saved six months’ worth of the sum of their living expenses in an emergency fund. This tactic ensures minimal chances of unforeseen circumstances throwing one’s financial wellbeing off track. It also creates peace of mind that even if one is to lose their job, leeway is available to find employment. Think of all the possible challenges that you might face during such unexpected situations and save according to them to have the highest possible level of preparedness.

 

LEVEL5: FLEXIBILITY

At this level, you would have a minimum of 2 years’ worth of living expenses saved. With such a vast amount at your disposal, one could easily overcome some of life’s worst financial hardships and really start to think about your money in the sense of what time it could buy you.

 

LEVEL6: FINANCIAL INDEPENDENCE

People who have made it to this level can live solely from the investments they had made that generates income for them. There are two main investments that can be made to achieve this goal. First would be to invest a large sum of money that generates interest large enough to live from. Secondly would be to own properties that you generate a cashflow from through renting them out. One could also consider combining these two examples where possible. Pursuing this goal sometimes requires one to live a more modest lifestyle to have more funds available for allocation towards these investments.

 

LEVEL7: ABUNDANT WEALTH

People who are financially self-sufficient that live off their investments, live by what is known as a “4%” rule. It implies that an investor can withdraw 4% of their bond portfolio and balanced stock each year that had been adjusted for inflation. Using this method, they can confidently know that their money will not deplete and continuously grow. Those in level 7 will have more money than they will ever need and live comfortably knowing that their financial freedom had been achieved.

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